ASK THE EDD LAWYER- MY ACCOUNTANT EMBEZZLED MY ESTIMATED TAX PAYMENTS. WHAT CAN I EXPECT FROM THE FTB BY THE WAY OF SYMPATHY?
By Robert S. Schriebman
Maybe it is the economy or maybe it is a reflection of a slow breakdown of the basic morals of our American way of life, but it seems that we are hearing and reading, with increasing frequency, incidence of theft at many levels in the business world. Perhaps Madoff was the worst of all, but what about the trusted accountant or lawyer who embezzles his or her client’s monies and destroys the fundamental pillar of trust in a professional relationship? I read recently of a case brought before the State Board of Equalization of taxpayers seeking to abate delinquency penalties caused by the embezzlement of their estimated tax deposits given to their accountant to be applied toward their state and federal income tax returns. These taxpayers were angry at the FTB because it refused to be sympathetic to their victimhood and refused to throw out late payment and late filing penalties. Was the FTB correct? Is the State of California here to protect people from criminals who carry licenses to practice law or accounting?
What is a taxpayer’s responsibility when it comes to conducting his or her business affairs? When it comes to the hiring of a professional representative the U.S. Supreme Court, back in 1983, decided the Boyle case. We are not required to act with super-human insight. We are only required to act with reasonable business prudence – no more, no less.
The Kupfer Case
At the end of 2013, the California State Board of Equalization released its decision in the Kupfer case. The Board was not sympathetic to the taxpayers’ choice of accountant. They were not eligible for abatement of late-payment penalties as well as penalties related to the understatement of their estimated personal income taxes. The Board acknowledged that their accountant had in fact embezzled the money paid to him to cover their tax liabilities. However, the Board felt that the taxpayers did not establish reasonable cause to abate these penalties. They were responsible for hiring their accountant. They attempted to delegate their responsibility for income tax compliance by discharging that responsibility on to their chosen accountant. The duty to pay taxes on time, and the duty to file tax returns on time are not duties that can be delegated to anyone other than the taxpayers themselves. Therefore, there was no “good cause” to allow the Board to abate their penalties.
There is a strong lesson to be learned from the Kupfer case. Your lawyer or accountant is your agent, and you must oversee what that person does or does not do on your behalf. You have the duty to be proactive. The Kupfers should have picked up the phone in a timely manner to verify that their estimated tax payments were timely made and to demand from their accountant written proof of the timely payment of these taxes.
The decision in the Kupfer case applies not just to FTB income taxes but applied with equal force to EDD quarterly and annual payroll tax compliance.
An EDD lawyer, Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States.
As a trusted EDD attorney, Robert S. Schriebman has successfully dedicated more than 30 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House and the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure”, both published by Commerce Clearing House.